Exploring the Best Alternative Trading Systems: Rewarding the Financial Markets

As has been mentioned before, high-frequency trading is an essential component of the modern-day fast-evolving financial market. Although trade fairs remain important they cannot be relied on as the best places to make some trades as they were in the past. This is where what are referred to as the Alternative Trading Systems (ATS) come into play. These are commonly referred to as dark pools or electronic communication networks (ECNs) have drastically changed the manner in which trades are effected in terms of privacy, cost and flexibility. In this post I will try to give you an idea of the most popular types of ATSs and how and why they are gaining popularity among traders and institutions.

An ATS is a trading platform that is neither a stock exchange and connects buyers and sellers for the exercise of securities trades. ATSs are not the same to the conventional stock exchanges such as the New York Stock Exchange or the National Association of Securities Dealers Automated Quotations; the platforms provide relatively loose structures and conditions for trading. Such systems facilitate fast, fast-high turnover, trades with relatively low transparency popular among institutional investors and hedge funds desiring to avoid adding pressure to the stock’s price.

ATS can be broadly categorized into two main types:

Dark Pools: Those trades that take place out of a formal exchange and whose details are not released until after the transaction has been completed. These FindObjectOfType: Board of directors who may wish to avoid market impacts by some big deals.

Electronic Communication Networks (ECNs): Electronic trading systems that permit the matching of actual buying and selling by the general public. As for more transparency, ECNs outweigh dark pools since these venues bring benefits in both terms of speed and costs compared to traditional exchanges.

Why Select an ATS?:

Alternative trading systems have become increasingly popular for several reasons:

Lower Transaction Costs: Compared to traditional exchanges, ATS frequently have less transaction costs, thus the facility is well-suited for high-speed traders or big tickets.

Increased Privacy: Dark pools allow for large trade that can be done with out bidding which affects the rest of the market. This minimizes the possibility of other members in the market exploiting the above described huge buying or selling orders.

Faster Execution: Through applying the high level of technology many ATS platforms offer better liquidity and faster order matching.

Reduced Market Impact: Since big trades are conducted out of sight of other traders in a particular stock, ATS platforms reduce the possibility of skewing the market price by large trades.

The Largest Alternative Trading Systems

Now that we have a better understanding of what ATS platforms offer, let’s take a look at some of the best systems available in the market today:

1. Liquidnet
2. IEX (Investors Exchange)
3. Barclays LX
4. SmartPool
5. Chi-X
   MUST HIGHLIGHT: Advantages And Disadvantages Of ATS
   While ATS platforms provide a number of benefits, there are also challenges to consider:

Benefits:

Lower Fees: On average, the fee charged in ATS platforms are relatively lower than those of traditional exchanges.
Privacy: Dark pools and ECNs are less transparent compared to normal exchanges, particularly to the large institutional trades.
Liquidity: ATS platforms therefore provide larger quantities of liquidity for large transactions and less market shock.
Challenges:

Regulatory Concerns: These pools of liquidity have lower regulation and as such, may not always prove beneficial for every investor in the market.
Transparency: While on the one hand, ECNs avoweness makes it clear to all the participants of the market, on the other hand, the same is not true with the dark pool which is disadvantageous.

Market Fragmentation: One disadvantage of having many ATS platforms is that there is often a situation when the distribution of quotations is extremely scattered, and it can be problematic to identify the most favorable rates.

Conclusion

Alternative Trading Systems have brought a significant revolution in the financial markets of today’s world. In doing so they have delivered lower costs, speed, and anonymity for large trades making them an option favoured by institutional investors and HF traders. Whether an institutional investor who requires discretion on enormous purchases, or a specific trader who is in the hunt for a more efficient trading channel, recognizing and capitalizing on the highly efficient ATS platforms hold a lot of benefits.

Thus, considering the further development of the financial markets and the presence of the ATSs, their role will only strengthen in the future as the Liberalization of the Global Financial Markets carries new possibilities for the investors in today’s increased complicated world.read more